A good year for stock market risk-takers

2017 has been a year that has favoured risk-takers, with emerging markets and technology leading the pack, research from Architas has found.

China has led global stock markets higher in 2017. In spite of concerns around the impact of Brexit, UK smaller companies have also done well, holding second place in this year’s investment league tables.

Adrian Lowcock, investment director, at Architas, said: “China has had a good 2017 as the economy recovered from a dip in recent years and investors shrugged off concerns over rising debt levels and in particular non-performing loans. The country has also benefitted from the interest in technology in 2017 as the leadership has been focusing on transitioning from a ‘Made in China’ policy to one of ‘created in China’. Chinese technology companies are now seen as global leaders in their space.

“Special technology funds have also performed well in 2017 with technology being a dominant theme in 2017. Investors have been attracted to the sector as growth businesses in a low growth environment have been few and far between. Technology companies offer high levels of growth, can disrupt existing markets with new technology, lower costs and be more flexible. As a result we have seen a rise in the popularity of specialist technology funds.”

At the opposite end of the spectrum lies gilts, and other bond sectors, which accounted for six of the ten bottom performing sectors. Bond markets have been hit by rising interest rate and inflation expectations. Gary Potter, co-head of multi-manager at BMO Global Asset Management, said that it has also been a tougher year for equity income strategies in relative terms.

“The world is still thirsty for income, but equity income has underperformed this year. This is largely because income funds don’t tend to hold the technology stocks – which don’t pay dividends – and they have performed exceptionally well this year.”

The UK Smaller Companies sector has been a surprise winner this year. Many were predicting its weakness in the wake of Brexit, but Lowcock points out that UK fund managers have repeatedly demonstrated their ability to add value in the smaller companies spaces. He said: “In addition smaller companies, although typically more domestically focused, can exploit niche growth opportunities and retain that flexibility which is important in a low growth environment. This helps explain why Polar Capital UK Absolute Equity and Old Mutual UK Smaller Companies Focus top the best performing charts this year.”

Top ten IA sectors

IA Sector

Percentage Return

China/Greater China

31.89

UK Smaller Companies

23.91

Technology & Telecommunications

22.54

Asia Pacific Excluding Japan

21.92

European Smaller Companies

21.78

Japanese Smaller Companies

21.27

Asia Pacific Including Japan

20.74

Global Emerging Markets

19.97

Europe Excluding UK

15.97

IA Japan

15.36

Source: FE Trustnet, 31 December 2016 to 4 December 2017. Total return in pounds sterling.

Top ten funds

Fund

Percentage Return

Polar Capital UK Absolute Equity

47.58

Old Mutual UK Smaller Companies Focus

47

Baillie Gifford Greater China

46.93

NB China Equity

45.19

Barclays Global Access Pacific Rim (ex-Japan)

41.82

Invesco PRC Equity

39.7

Elite Webb Capital Smaller Companies Income & Growth

39.43

Legg Mason IF Martin Currie China

38.69

JPM Asia Growth

38.42

Baillie Gifford Pacific

38.32

Source: FE Trustnet, 31 December 2016 to 4 December 2017. Total return in pounds sterling.

Cherry has worked for a range of national, consumer and trade titles including the Financial Times, Telegraph, Investors Chronicle and Money Observer. She has co-authored a book on investing in emerging markets and is a multiple winner of the Investment Management Association and Association of Investment Companies freelance journalist of the year award..